US ETF Inflows Hit A Record $188B in 2012

Investors poured a record $188 billion into U.S.-listed ETFs in 2012, eclipsing a previous record of more than $175 billion in 2008, as a variety of asset classes shined—including domestic as well as international equities, and particularly fixed income.

Overall, total ETF assets ended the year at almost $1.349 trillion, 27 percent higher than the $1.062 trillion a year earlier and 2 1/2 times as much as the $537 billion total at the end of 2008, according to data compiled by IndexUniverse.

The 2012 year-end asset total, just shy of an all-time record of $1.350 trillion reached on Thursday, Dec. 20, also reflects the rise in global stock markets, including a 7.3 percent increase in the Dow Jones industrial average in all of 2012.To The Giants Go The Spoils

Of the $188 billion in 2012 inflows, $151 billion, or 80 percent of the total, came from the three biggest firms: BlackRock's iShares, State Street Global Advisors and Vanguard.

The dominance of bigger firms is by now a familiar tale in the U.S. ETF industry, which began about 20 years ago with the launch of SSgA's SPDR S&P 500 ETF (SPY).

In that light, it's no surprise that last year's asset-gathering winner was SPY, the biggest ETF in the world. It pulled in $15.77 billion, or more than 8 percent of the total asset haul.

Overall, bond funds pulled in around $56 billion, or about 30 percent of the total asset haul.

More to the point, the nearly $44 billion that flowed into U.S. bond funds was almost 20 percent of the total, while the nearly $12 billion in new money invested in international bond funds constituted more than 45 percent of the total—both higher percentages than in either U.S. or international equities.

Also, we've spilled a bit of ink this year on the Nos. 2 and 3 funds: the Vanguard MSCI Emerging Markets ETF (VWO) and the iShares MSCI Emerging Markets Index Fund (EEM).

They both gathered about $10.5 billion, with the lion's share of EEM's asset haul occurring after Oct. 2, when Vanguard announced that next year it will abandon the MSCI index VWO has shared with EEM in favor of a benchmark created by FTSE.

A conservative backlash against Republicans over their deal with Barack Obama to lift taxes has hardened the party leadership’s resolve to demand huge spending cuts as the price for increasing the country’s borrowing limit.

Mitch McConnell, the Republican Senate minority leader, rejecting Mr Obama’s statement that he would not negotiate over the issue, said the debt ceiling debate in coming months was the ideal time to force the administration to cut outlays.

“The President may not want to have a fight about government spending over the next few months, but it’s the fight he is going to have, because it’s a debate the country needs,” Mr McConnell said in an opinion article on Yahoo.com.

Mr McConnell, who is up for election in 2014, and his Republican colleagues in the Senate, have been stung by criticism on the right for their role in brokering a deal with the White House over the fiscal cliff.

The final deal, negotiated between Mr McConnell and Joe Biden, the vice-president, was passed overwhelmingly in the Senate, marking the first time Republicans in Washington have voted for income tax increases in more than two decades.

The administration had also wanted to adopt a proposal first advanced by Mr McConnell, which would have curtailed the ability of Congress’ to refuse to limit the debt ceiling.

But Mr McConnell no longer seems to support this plan and also says that the fiscal cliff agreement is the last time Republicans will support tax increases.

“The moment he [Obama] and virtually every elected Democrat in Washington signed off on the terms of the current arrangement, it was the last word on taxes. That debate is over,” he said.

Does anyone believe the Republicans will really hold out for budget cuts? I sure don't after all the white flag waving we have seen.

I sure hope I am wrong, but what I fully expect is another can-kicking exercise in which Republicans cave in on cuts to entitlements in return for Democrats caving in on cuts to military.